Question 1

The economy is in long-run equilibrium when

Accepted Answer

A) an optimal mix is reached. 
B) input prices have fully adjusted to changes in output prices. 
C) few input and output prices have adjusted. 
D) change is the leading characteristic of the production factors. 
A) an optimal mix is reached. 
B) input prices have fully adjusted to changes in output prices. 
C) few input and output prices have adjusted. 
D) change is the leading characteristic of the production factors. B

Question 2

The change in the domestic price level that causes consumers to substitute into or out of relatively cheaper or relatively more expensive imported goods is called

Accepted Answer

A) the substitution-of-foreign-goods effect. 
B) the wealth effect or real-balances effect. 
C) the constant nominal income effect. 
D) long-run equilibrium. 
A) the substitution-of-foreign-goods effect. 
B) the wealth effect or real-balances effect. 
C) the constant nominal income effect. 
D) long-run equilibrium. A

Question 3

In the AD/AS framework, an unexpected increase in the money supply and a resulting increase in aggregate demand, causes nominal wages

Accepted Answer

A) to remain unchanged. 
B) to decrease. 
C) to start to rise, but at a slower rate than prices. 
D) to fluctuate wildly. 
A) to remain unchanged. 
B) to decrease. 
C) to start to rise, but at a slower rate than prices. 
D) to fluctuate wildly. C

Question 4

Which of the following is likely to lead to a decrease in aggregate demand?

Accepted Answer

A) a decrease in interest rates 
B) a decrease in national income 
C) an increase in national income 
D) an increase in government spending on goods and services. 
A) a decrease in interest rates 
B) a decrease in national income 
C) an increase in national income 
D) an increase in government spending on goods and services.

Question 5

In the short run, if aggregate demand decreases,

Accepted Answer

A) output increases while prices fall. 
B) only prices fall. 
C) prices rise. 
D) both output and the price level fall. 
A) output increases while prices fall. 
B) only prices fall. 
C) prices rise. 
D) both output and the price level fall.

Question 6

Which of the following phrases best describes the wealth effect?

Accepted Answer

A) When the overall price level increases, ceteris paribus, domestic goods and services become relatively more expensive and foreign goods become relatively cheaper. 
B) When income or wealth increase, consumption is likely to decrease. 
C) If the price level increases while the nominal money supply remains constant, the supply of real money balances decreases and spending units experience a loss of purchasing power. 
D) When the price level rises, the quantity demanded of real GDP must fall in accordance with the constant nominal income constraint. In short, less is demanded at higher prices because the funds run out sooner. 
A) When the overall price level increases, ceteris paribus, domestic goods and services become relatively more expensive and foreign goods become relatively cheaper. 
B) When income or wealth increase, consumption is likely to decrease. 
C) If the price level increases while the nominal money supply remains constant, the supply of real money balances decreases and spending units experience a loss of purchasing power. 
D) When the price level rises, the quantity demanded of real GDP must fall in accordance with the constant nominal income constraint. In short, less is demanded at higher prices because the funds run out sooner.

Question 7

Net exports are __________ related to the exchange rate.

Accepted Answer

A) (positively) directly 
B) weakly 
C) not 
D) inversely 
A) (positively) directly 
B) weakly 
C) not 
D) inversely

Question 8

As a component of aggregate demand, government spending

Accepted Answer

A) includes government purchases of goods and services, transfers, and interest on the national debt. 
B) is the largest component. 
C) is the most volatile component of aggregate demand. 
D) includes only government purchases of goods and services. 
A) includes government purchases of goods and services, transfers, and interest on the national debt. 
B) is the largest component. 
C) is the most volatile component of aggregate demand. 
D) includes only government purchases of goods and services.

Question 9

In the short run, if aggregate demand increases, what happens to output prices relative to input prices?

Accepted Answer

A) They rise. 
B) They decline or stay the same. 
C) They may rise or decline. 
D) They do not change. 
A) They rise. 
B) They decline or stay the same. 
C) They may rise or decline. 
D) They do not change.

Question 10

Starting from long-run equilibrium, an increase in aggregate demand will cause

Accepted Answer

A) a decrease in production in the short run. 
B) an increase in employment in the short run. 
C) a decrease in the price level. 
D) downward pressure on wage rate. 
A) a decrease in production in the short run. 
B) an increase in employment in the short run. 
C) a decrease in the price level. 
D) downward pressure on wage rate.

Question 11

The vertical curve through the natural rate of output to which the economy will return in the long run, regardless of the price level, is called the

Accepted Answer

A) long-run aggregate supply curve. 
B) short-run aggregate supply curve. 
C) aggregate supply curve. 
D) aggregate demand curve. 
A) long-run aggregate supply curve. 
B) short-run aggregate supply curve. 
C) aggregate supply curve. 
D) aggregate demand curve.

Question 12

A short-run equilibrium of the economy

Accepted Answer

A) stabilizes price levels. 
B) is a nonsustainable situation. 
C) is the natural level of real output. 
D) is always above full employment. 
A) stabilizes price levels. 
B) is a nonsustainable situation. 
C) is the natural level of real output. 
D) is always above full employment.

Question 13

Transfers are excluded from aggregate demand because they

Accepted Answer

A) do not represent purchasing power. 
B) merely shift purchasing from one group to another. 
C) are not easy to register in accounting. 
D) only add to confusion. 
A) do not represent purchasing power. 
B) merely shift purchasing from one group to another. 
C) are not easy to register in accounting. 
D) only add to confusion.

Question 14

A curve showing an inverse relationship between the overall price level and the quantity of real output that will be demanded at various price levels, ceteris paribus, is called the

Accepted Answer

A) long-run aggregate supply curve. 
B) short-run aggregate supply curve. 
C) aggregate supply curve. 
D) aggregate demand curve. 
A) long-run aggregate supply curve. 
B) short-run aggregate supply curve. 
C) aggregate supply curve. 
D) aggregate demand curve.

Question 15

The major catalyst behind aggregate demand fluctuations is

Accepted Answer

A) monetary and fiscal policy. 
B) changes in the labor force. 
C) overall liquidity of the financial system. 
D) changes in stock prices. 
A) monetary and fiscal policy. 
B) changes in the labor force. 
C) overall liquidity of the financial system. 
D) changes in stock prices.

Question 16

In the short run, the Phillips curve is

Accepted Answer

A) upward sloping. 
B) downward sloping. 
C) horizontal. 
D) vertical. 
A) upward sloping. 
B) downward sloping. 
C) horizontal. 
D) vertical.

Question 17

Ceteris paribus, increases in government spending __________ aggregate demand.

Accepted Answer

A) increase 
B) decrease 
C) have no affect on 
D) None of the above is correct. 
A) increase 
B) decrease 
C) have no affect on 
D) None of the above is correct.

Question 18

What is measured on the vertical axis of the aggregate supply curve?

Accepted Answer

A) real output 
B) the overall price level as captured by a price index 
C) a goods relative price 
D) the quantity per time period of a particular good 
A) real output 
B) the overall price level as captured by a price index 
C) a goods relative price 
D) the quantity per time period of a particular good

Question 19

Which of the following is most likely to cause an increase in aggregate demand?

Accepted Answer

A) an increase in interest rates 
B) a decrease in national income 
C) an increase in imports 
D) an increase in defense spending by the federal government 
A) an increase in interest rates 
B) a decrease in national income 
C) an increase in imports 
D) an increase in defense spending by the federal government

Question 20

An increase in personal income tax rates

Accepted Answer

A) decreases consumption expenditures. 
B) increases corporate tax rates. 
C) increases expected profitability of an investment. 
D) increases aggregate demand. 
A) decreases consumption expenditures. 
B) increases corporate tax rates. 
C) increases expected profitability of an investment. 
D) increases aggregate demand.

Exam 22: Aggregate Demand and Aggregate Supply

The economy is in long-run equilibrium when

The change in the domestic price level that causes consumers to substitute into or out of relatively cheaper or relatively more expensive imported goods is called

In the AD/AS framework, an unexpected increase in the money supply and a resulting increase in aggregate demand, causes nominal wages

Which of the following is likely to lead to a decrease in aggregate demand?

In the short run, if aggregate demand decreases,

Which of the following phrases best describes the wealth effect?

Net exports are __________ related to the exchange rate.

As a component of aggregate demand, government spending

In the short run, if aggregate demand increases, what happens to output prices relative to input prices?

Starting from long-run equilibrium, an increase in aggregate demand will cause

The vertical curve through the natural rate of output to which the economy will return in the long run, regardless of the price level, is called the

A short-run equilibrium of the economy

Transfers are excluded from aggregate demand because they

A curve showing an inverse relationship between the overall price level and the quantity of real output that will be demanded at various price levels, ceteris paribus, is called the

The major catalyst behind aggregate demand fluctuations is

In the short run, the Phillips curve is

Ceteris paribus, increases in government spending __________ aggregate demand.

What is measured on the vertical axis of the aggregate supply curve?

Which of the following is most likely to cause an increase in aggregate demand?

An increase in personal income tax rates

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

The Structure of Interest Rates

Market Efficiency and the Flow of Funds Among Sectors

An Introduction to Financial Intermediaries and Risk

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Financial Instability and Strains on the Financial System

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

How Exchange Rates Are Determined

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

The Challenges of Monetary Policy

The Process of Monetary Policy Formation

Policy Implementation

Monetary Policy in a Globalized Financial System

Filters